Slugger O'Toole

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Fiscal apocalypse: Northern Ireland spending exceeds tax by 39.3% of its GDP

Tue 14 February 2012, 11:01am

There’s been a lot of complaining, mostly though not entirely from the SDLP, and certainly the unions, that OFMdFM ought to be fighting a better fight with Whitehall, and in particular HM Treasury… Well, according to Douglas McWilliams (H/T reader Stuart), here’s what Sammy Wilson is up against when it gets close and personal with Mr Osborne’s traditionalist team:

In the UK there is considerable variance in tax receipts as a share of GDP between regions – from Northern Ireland where tax is only 27.7% of GDP to London where tax is 45.2% of GDP. These differences are about half the variances in public spending as shares of GDP.

But for some taxes the regional differences are huge. The bulk of Stamp Duty Land Tax is paid in London and the South East. The 50p income tax rate is also largely a London and South East tax.

But the taxes and public spending reinforce each other. So whereas in London tax exceeds spending by 10.3% of its GDP, in Northern Ireland spending exceeds tax by 39.3% of its GDP.

To standardise this, you need to subtract the total deficit which on this definition (a few small items are excluded so it is not completely comparable with normal PSNB numbers) is 10.0%.

So London provides a net subsidy of 20.3% of GDP. Northern Ireland receives a net subsidy of 29.4%, while Wales receives a subsidy of 26.0% and the North East 22.2%.

Ssshhh…. Don’t tell the Germans!

BTW Scotland comes in at zero under McWilliams’ calculations when he takes into account oil transfers.. Onwhich more later…

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Comments (31)

  1. Drumlins Rock (profile) says:

    Have always wondered, when I spend £50 in my local Tesco/Sainsburys/Asda the profit they make is lodged by thier London HQ I presume, all the top Eexecs paying the 40% are based in London or SE, they are buying the hight stamp duty property, the shares are bought and sold in London, by 40% tax paying dealers, etc etc, so is it not our money paying for London too?

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  2. Ryanmcco (profile) says:

    I work for a company based in the south east, their HR and payroll are all based at their Head Office. So my tax office is actually Portsmouth, yet I’m living in Co. Antrim.

    I’d love to know where it is that I’m counted in these figures?

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  3. DC (profile) says:

    Of course the South East is being taxed more – simply because it was the London banks – and its associated financial sector – that fouled the nest.

    Those good times did not mean that there was a good economic system in place, the south east should pay its way disproportionately, as it creamed off the profits disproportionately whenever the going was good.

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  4. lafcadio (profile) says:

    Drumlins Rock – only if you believe that NI contributes disproportionately to Tesco’s overall profits etc

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  5. Drumlins Rock (profile) says:

    no its not laf, if Tesco etc. earn £100m profit in NI, is the tax creditied to here or London in these calculations?

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  6. IJP (profile) says:

    Drumlins

    It’s a good point – basically the answer is it is credited to London.

    I’m the first (often literally) to argue that NI needs to pay its own way and rely less on the public sector, but in fairness these figures are slightly harsh!

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  7. FuturePhysicist (profile) says:

    I think you’re right IJP, obviously the availability of the money, plus the urgent need to restructure our infrastructure for development has to be taken into account.

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  8. Agree with IJP that the figures as presented are a little harsh.

    Also, if you include stamp duty (one of the quoted examples), since it is effectively a wealth tax not an income tax, the figures are being distorted by the increased wealth of the southeast of England, as compared to the rest of the country. Income may be a better measure of ability to pay – and maybe ability to pay is a better criterion than overall payment.

    Come to think of it, if NI income is lower, and VAT and Income Tax overall is regressive (is it?) maybe as a proportion of disposible income or “ability to pay” we are being overtaxed. And thus the overspend may be less.

    In any case, it can’t just be about spending per head – there are certain expenses that don’t rise proportionately to population.

    There may be other issues with the figures… certainly OFDM should be recruiting local / intelligent economists to find them, and exploit them in discussions. Sorry, that should be “ensure that the shortcomings do not unfairly damage NI’s case.”

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  9. FuturePhysicist (profile) says:

    Of course the South East is being taxed more – simply because it was the London banks – and its associated financial sector – that fouled the nest

    I wish the tax system were that punitive, personally I believe lower capital spend added to higher property rates, higher income tax revenue. Financial institutions are a sacred cow.

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  10. FuturePhysicist (profile) says:

    well in the UK and Ireland at least.

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  11. DC (profile) says:

    Re sacred cow – I’m beginning to think that the EU state aid rules having been torn up for the public sector taking over private banks should also be torn up for regional corporation tax in that the NI subsidy shouldn’t be affected when lowering the rate.

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  12. Old Mortality (profile) says:

    Drumlins & IJP
    Asda’s HQ is in Leeds. Tesco operates through a subsidiary in NI so one supposes that its tax payments are made here.

    There’s no doubt that London’s tax receipts are inflated by the HQ effect but public sector spending must also be, due to the considerable presence of central government.
    If any politician (not Boris Johnson, I suspect) wants to come up with a Big Idea, they could do worse than advocate the creation of a new seat of government somewhere else in the country. That would help cut London down to size as well as boost another region. Chester (if it’s not in Wales), York or Durham spring to mind as potential candidates.

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  13. DC (profile) says:

    Re company profits based in NI being counted altogether as national ones at the main London headquarters, that is one of the reasons why corporation tax powers were scuppered because the Treasury wasn’t able to disentangle profits earned in NI from those companies like Tesco who are registered in London and record all profits there nationally.

    If the Treasury couldn’t give realistic and accurate figures then only a fool would accept lowering the rate of corporation tax in sync with cutting of bloc grant by an unknown amount. How could any regional government plan sound budgets that way?

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  14. Old Mortality (profile) says:

    DC
    The solution would be to require all companies operating in Northern Ireland to be incorporated here, as Tesco is.

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  15. Drumlins Rock (profile) says:

    OM, thanks for the info, would in interesting to know how much th HQ effect is taken into account, prob NI is still far from paying its way but a more realistic target would help!

    Going with tangent (sorry Mick) I think a new Fantasy Federal United Kingdom (inc. Ireland) should have a capital territory based in Liverpool and environs, at the same time making London (excluding the most historic bits of Westminister) a “City State” equal to Scotland etc. Liverpool in many ways is as Irish, Scottish and Welsh as it is English.

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  16. Maybe instead of worrying about where companies are headquartered, we should get them to pay tax based on where they employ people. Wait a sec…

    I do like the idea of having Liverpool as the capital. Let’s do it regardless.

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  17. DC (profile) says:

    @old mort

    I’m not sure on the finer details of what being incorporated here means, but i thought that Tesco submits all profits made across the UK in one place, in London, simply because there is one national rate, therefore there is no need to break down profits (for tax purposes) on a regional basis. Im sure Tesco knows fine well what its profits are for its NI operations, but company managers will hardly spend time pulling these sort of figures out just to help officials of the Treasury determine a government policy. Especially whenever – as things stand – there is no legal requirement for Tesco to reveal its profits on a regional basis.

    I think to get round this, corporation tax powers should be devolved to the NI Assembly but the rate should stay the same until there is enough data in place to work out more precisely how much cutting the rate would cost the bloc grant.

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  18. Old Mortality (profile) says:

    Andrew
    ‘I do like the idea of having Liverpool as the capital. Let’s do it regardless.’

    That’s going a bit far. I can’t see the diplomatic corps rushing to set up shop in Liverpool. You’d have to spend millions training the locals to speak a comprehensibe form of English. It’s a bit like suggesting Derry as the capital of Ireland, so it is, like.

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  19. IJP (profile) says:

    Drumlins, FuturePhysicist, notmyopinion

    Agreed.

    The slight risk with presenting the figures in this way is that we give up hope of ever catching up. Actually we’re not far behind most UK regions outside the south and east of England. When you consider we take the summer off…!

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  20. Old Mortality (profile) says:

    DC
    It doesn’t matter where the tax is paid. It depends whether Tesco NI makes a provision in its accounts for corporation tax. That could be checked at Companies House. Any corporation tax paid in respectof NI profits would surely be deducted from the consolidated. Is there an accountant in the house?

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  21. Dewi (profile) says:

    Why on earth is Tescos NI incorporated there? Strange and very untypical.

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  22. FuturePhysicist (profile) says:

    Key issues are export markets, and local innovation and entrepeneurship. Take R&D for example, Northern Ireland lags behind all the regions in these islands when it comes to spend, particularly amongst SME’s, while in the Republic farmers are looking at the development of the skills and the procurement of investment of bio-fuels, mechanisation, new agricultural processes … the large agricultural sector in the North cannot afford to keep up.

    My belief is that the low spend on R&D is perhaps actually less due to “risk avoidance” but rather due to a systemic ignorance of scientific financial planning. Everyone knows that an innovative scientific idea could save a company money, and with the right brains in science, engineering, computing around this should be possible … but to get someone who can actually budget it all out in an effective manner rather than simply an “economical” one, that’s perhaps the type of talent that may be missing from this region.

    I think we have the risk takers, I don’t believe they are taking the right risks.

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  23. Old Mortality (profile) says:

    Dewi
    ‘Why on earth is Tescos NI incorporated there? Strange and very untypical.’

    It could be to do with the fact that they originally set up in NI through the acquisition of a local supermarket chain whereas Sainsbury did so organically.

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  24. Drumlins Rock (profile) says:

    FP, I think the problem is our risk takers spend their time fighting red tape not developing, the system here punishes risk. I live in South Tyrone, we have low levels of public employment by NI standards, but quite low unemployment, mainly due to a few risk takers in the engineering and food sectors.

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  25. FuturePhysicist (profile) says:

    Indeed they do, however I do feel present the case that you can manage risks, as many well informed people in the engineering environment do, and the demand for regulations drop, plus they have the expertise not to red flag themselves,

    The other extremum is what has happened in the banking sector, and the problems within government in ignoring red flags.

    Cleary policy should be diverse and encourage diverse industry rather than a one size fits all.

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  26. jthree (profile) says:

    OM do you the name or company number of the Tesco NI subsidiary?

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  27. ForkHandles (profile) says:

    “they originally set up in NI through the acquisition of a local supermarket chain”

    Now thats crazy prices !!
    Actually i think it was Stewarts. Ahhhh yellow pack……

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  28. USA (profile) says:

    From today’s press conference:
    In a press conference on Thursday, joint administrators Paul Clark and David Whitehouse also revealed that a £24million loan from Ticketus against season ticket sales did not go through the company’s accounts.

    On the issue of Ticketus money and HMRC, Whitehouse admitted: “That’s not common practice.”

    Here is a link to the whole article.

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  29. USA (profile) says:

    Oops…Sorry, I put that on the wrong thread.

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  30. lafcadio (profile) says:

    Wrt to issue of where corporation tax is ‘booked’ in this analysis, it’s a fair question – it depends on CEBR’s methodology, as to whether they have for example tried to attribute corporation tax regionally pro rata proportion of taxable income. I expect not. However corporation tax accounts for just around 10% of total tax receipts, so even if there is a bias here in favour of regions where head offices/tax-paying entities are situated (not all of which will be SE/London incidentally) it is unlikely to change the analysis dramatically.

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  31. Barnshee (profile) says:

    N Ireland has 2 or 3% of the UK population The amount of company profit generated in NI (and hence Corporation Tax attributable to N Ireland ) is thus trivial. Given the low income /dole dependency culture activity levels/ turnover/profitability will also suffer.
    God bless the subvention

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